Americans Unlikely To Save More for Retirement in 2017

Even though saving for retirement
is America’s top financial concern, only 32% of people plan to increase
contributions to their retirement accounts in 2017, according to the latest
research by NerdWallet.

Moving into the New Year,
Americans’ prospects for a comfortable retirement are not looking too bright. A
year-end report by NerdWallet finds that only 29% of respondents reported
feeling confident that they saved enough for retirement this year. Nearly one
in three aren’t saving at all.

The survey also revealed major
anxiety over lack of savings, and other financial obligations that may be
forcing retirement savings to take a back seat. The top financial concerns are health care bills and expenses
(35%), lack of emergency savings (35%), lack of retirement savings (28%) and
credit card debt (27%).

Not surprisingly, the Centers for
Medicare & Medicaid Services predict health care spending to increase at an
average of 5.8% per year between 2015 and 2025, and the U.S Department of
Health and Human Services projects per-person cost in 2016 to top $10,000 for
the first time. Moreover, NerdWallet’s analysis found that credit card debt
averages at $16,060 and has increased 11% in the last decade.

“Every dollar Americans have to
put toward health care, debt and other expenses is a dollar that isn’t saved
for retirement,” says Kyle Ramsay, CFA, head of investing and retirement for
NerdWallet. “This struggle to keep up with competing financial priorities is
part of why Americans of all ages are falling behind in their retirement
savings goals.”

And 2017 may not be any better
for nest eggs. Of the 70% of people saving for retirement, only 32% plan to
increase contributions into their work place retirement accounts.

The survey results also offered
some interesting insight into how different generations approach retirement
planning. Those between ages 45 and 54 were the most likely to be concerned about retirement saving.
Of these individuals, only 20% reported feeling confident that they saved
enough this year. Forty-three percent of Millennials, defined
in the study as those between ages 18 and 34, are not saving for retirement at
all. This is true for 30% of all respondents.

NEXT: Not Saving Correctly

Moreover, several Americans are
missing out on key tax advantages by funding their retirement through ordinary savings
accounts rather than an employer-sponsored one or an individual retirement account
(IRA). NerdWallet found that 55% of people are using regular savings accounts
to support their nest eggs. This figure increases to 63% for Millennials,
suggesting a major education gap about retirement account benefits.

“Consumers should heavily
consider saving in retirement accounts like IRAs and 401(k)s to take advantage
of substantial tax savings and the flexibility to invest for higher potential
returns,” says Ramsay.

The firm notes that “In a
traditional IRA or 401(k), the money invested grows tax-deferred, and
distributions in retirement are taxed. Consumers who meet the Roth IRA rules
should also take advantage of that account, which doesn’t offer a tax deduction
on contributions but allows tax-free distributions in retirement.”

Ramsay adds, “The tax-advantaged
status of contributing to a 401(k) or traditional IRA is a useful tool in two
ways. First, you can manage your tax bracket by increasing your contribution
and reducing your modified adjusted gross income. Second, because 401(k) and
IRA contributions are pre-tax, the dollars you contribute to those accounts are
worth more than regular savings. If your marginal tax rate is 25%, $100 saved
is worth $133 if saved pre-tax in a 401(k) or traditional IRA.”

Using a set of constants, NerdWallet
also found that annually increasing contributions by 1% by starting 5% of
income and reaching 15% income, a person can generate more than $600,000 in
savings, as opposed to staying at a 5% contribution level.

Plan sponsors can also offer retirement
calculators to help individuals visualize their retirement goals and develop
strategies.

Even if investors max out their
retirement accounts, they can move onto taxable brokerage accounts, which historically
have produced larger returns than what bank accounts offer in interest.

“Low interest rates mean using a
bank savings account to save for retirement can lead to a substantial
retirement savings shortfall,” says Ramsay. “That can be particularly harmful
to young investors — their long time horizon enables them to ride out
short-term market swings and compound their investment returns over time.”